Panagariya’s comments come at a time when India has introduced certain imports in the restricted list including tyres and TVs to curb imports from China as it aims to become self reliant in these sectors.
“While I am not yet worried about the return of term Atma Nirbhar Bharat, what is worrying is turn in policies three years ago and that have not reversed since,” Panagaiya said on Saturday at the India@75 summit by the Confederation of Indian Industry.
“Import licence will be a complete violation of the WTO. By raising import tariffs India will only be encouraging micro and small enterprises. Instead we need to focus on creating large and medium enterprises which will compete in the global market palace,” he said.
Commenting on the government’s call for a self-reliant or Atma Nirbhar Bharat, Panagariya said import substitution is not a good thing. “Any trade series will show imports and exports grow together. Openness is needed in the global marketplace to compete with the best players,” he said.
According to Panagariya, there is confusion among policymakers in India that replacing imports and manufacturing everything domestically will add to India’s GDP. “If you replace all imports then why will you export..it’s like throwing things into harbour and oceans. Your export will go out and hence your GDP will decline automatically,” he said.
Advocating the need for a demand boosting stimulus for the country, Panagariya said going forward the government will need a large volume of resources to yet again recapitalise banks.
“Down the road if inventories are accumulating it will mean weaker demand. That is when we will need stimulus on the demand side as the economy picks up,” he said.
Panagariya is of the view that a lot of firms will come out stressed and there will be a further rise in the non performing assets of banks. “Government will need a large volume of resources to yet again recapitalise banks,” he said.
Panagariya said India is missing out on medium and large scale firms big time and if the government continues to give full protection, the firms will remain micro and small and India will not be able to bring down its cost of production.
Commenting on the limited capacity with the Centre to get into every sector despite repeated failures, Panagariya said India needs to create multiple strong think-tanks that can advocate strong policy direction based on credible research.